Law firms face a unique set of challenges to stay competitive. Managing overhead, rates and compensation structure is a delicate balance. In a landscape shaped by constant regulatory and market shifts, firms need a plan to maintain long-term stability and growth. For small to midsize firms, offering a more diverse legal platform as part of a larger business model is a key factor in revenue generation, client retention and lateral acquisition.

Benefits of Practice Diversification

Firm Stability - Weathering the Storm

As firms of all sizes know, changes in market climate produce changes to the types of legal services in demand. While some areas of law remain in high demand, others languish due to clients' changing business needs.

During the recent recession, this was particularly true. Many firms were forced to reevaluate their business model. Those firms who offered a wider selection of practices were better able to survive and even experience growth. Market conditions are not the only determinant of law firm health. Firms with highly specialized areas such as immigration and healthcare are often impacted by regulatory developments.

In a volatile business and regulatory environment, clients' needs for services change rapidly. Greater diversification allows a firm to manage the impact of industry ups and downs.

Value Proposition – Show them WHY You're Different

Clients' expectations for value are more significant post-recession. According to Altman Weil's 2013 Chief Legal Officer Survey, among the top improvements Chief Legal Officers would like to see from their outside counsel, were improved budget forecasting, greater cost reduction and thoughtful and early strategies to resolve issues quickly.

Having a more full-service business model can directly translate to client value. With multiple related practices under one roof, firms can be nimble, better expedite transactions and offer holistic strategies. This increases the likelihood that clients become institutional as they foster deeper relationships within the firm. It also creates a sense of brand loyalty.

Recruiting and Retention – Give them a Reason to Join… and Stay

Law firms are facing increasing partner mobility. Partners leave their firms for any number of reasons. While larger firms offer deeper bench strength, attorneys tend to become more specialized; some enjoy this level of specialization, but others find it limiting. Another common issue attorneys face at larger firms is rate sensitivity. A fully diversified mid-size firm can provide equally comprehensive services at lower cost in a more entrepreneurial environment.

Another group of partners who seek to move into mid-size law firms are those from smaller firms or boutiques whose clients are successful, growing, and have reached the stage such that the partner needs additional resources with which to service those clients. Offering a variety of practices helps mid-size law firms recruit lateral candidates whose clients may want a more full-service approach.

Having a diverse array of practices can also be helpful in recruiting associates. Exposure to a wide variety of matters, combined with a smaller setting, affords them the opportunity to become more directly involved with clients earlier in their careers.

Building new and distinct legal services reduces the likelihood of a concentration or redundancy in a single area and creates a more equitable distribution of revenue. This, in turn, promotes a more collaborative atmosphere.

Collaboration is an industry buzzword that many firms promise, but rarely deliver. Whether it's a firm's compensation structure, culture or multi-office locations that pose a challenge – it is more common to find attorneys working in all too familiar “silos.” Having a more diverse array of services and a strong cross-selling program enhances collaboration and increases attorney retention.

Proven cross-selling strategies include:

• Conducting regular monthly meetings between practice group leaders;
• Providing frequent networking and integration activities;
• Facilitating business planning and encouraging inter-disciplinary planning sessions;
• Maintaining a centralized experience database; and
• Constantly educating attorneys on other areas of the firm.

Professional Development – Strength Comes from Investing Within

Employee retention is a challenge in any profession. In an increasingly competitive job market, managing partners and leadership often struggle with hiring and retaining new talent. Employees are placing greater value on total compensation packages, workplace benefits and opportunities for growth. Research from Robert Half reveals that 20% of employees cite limited opportunities for advancement as a top reason for leaving a job.

To incentivize employees, it's important to constantly create new growth opportunities and take your employees beyond the status quo. Expanding your firm's legal offerings can be the catalyst for attorney and staff development. As areas of the firm expand, employees are educated on the skills required to service those areas. Continuing education can offer employees the ability to become an integral part of the firm's strategic objectives and ultimately result in more engaged employees.

For example, the acquisition of a new group such as bankruptcy might require unique conflict procedures, billing systems or practice management improvements. This might lead to further training and new responsibilities for paralegals, secretaries, billing professionals and IT.

By continually evaluating clients' business needs and market trends and supplementing existing offerings with value added services, there is an endless field of opportunities for employees. This can be vital to employee satisfaction and retention.

Steps Toward Diversification

Be Strategic

Identify and offer practice areas that either are under Big Law's radar or may complement those typically found in Big Law. These services can be attractive to clients who have become more sensitive to escalating legal fees.

Recurring client needs such as business immigration, commercial lending, real estate leasing and labor and employment are examples of areas that are well-suited to mid-size firms. With lower overhead structures, mid-size firms can offer these services at competitive rates. These engagements generate a steady stream of work that evens out cash flow when work in other practices is stagnant.

Another strategy is to find areas to serve as special counsel on matters handled by larger firms. Often, complex corporate transactions require deep experience in areas such as intellectual property, employee benefits and tax. Having highly specialized services within the firm creates another avenue for matters that may not require a larger legal team.

Create Spinoffs

Expand the depth of your existing practice areas. For example, in a construction practice, supplement transactional contract work with litigation. For an intellectual property group that specializes in trademark work, seek to acquire practices in other areas such as patent, copyright or litigation. Also, seek lateral candidates with varied industry experience.

Keep Your Finger on the Pulse

More law firms are developing new practice areas around targeted industries. When visiting law firm websites, it is common to see a mix of traditional practices areas and separate industries such as retail, fashion, non-profit or life sciences.

Often companies in a given industry have legal needs that cover multiple disciplines. By developing new industry groups, you can leverage the firm's existing expertise to service clients at every stage of their business.

Build a Strong Foundation for Every Acquisition

As mid-size law firms add new partners and practices, it is critical for firm's to maintain the focus on integration both before and after an acquisition. Only with effective integration will the firm benefit from new compatibilities and cross-selling opportunities.

The integration process should begin as soon as the lateral candidate accepts the offer through constant communication both internally and with the candidate. It is important for the firm's integration team to ensure that new attorneys are properly acclimated into the firm both from an operational and business development standpoint.

Stay True to Yourself

Whether acquiring new attorneys or practice areas, stay true to your firm's character and values, and remain focused on the markets and clients who have brought you to where you are today.

Be selective in your acquisition process; add service areas and laterals only as the need is identified to preserve the firm's culture. Share the firm's growth strategy on a consistent basis to facilitate open dialogue and interaction among employees and practice groups. This open exchange encourages the development of initiatives and helps all employees gain a vested interest in the firm and a better understanding of how they fit into the bigger picture.

Your Pot of Gold

In a global economy, the methods for doing business are constantly evolving. An adaptable approach to legal services ensures that you can meet clients' immediate business needs, anticipate future challenges and better position your firm to handle them.

Equally as valuable as a firm's clients, are the attorneys and staff that service them. Recruiting and retaining a talented team is crucial. Opportunities for growth, entrepreneurship and culture all contribute to employee retention.

Practice diversification can create new opportunities for employees at every level of the firm and is an effective strategy in achieving long-term stability.

Reprinted with permission from the February 2, 2015 issue of the New York Law Journal. ©2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.